Capacity utilization rose to 81.7% in the first quarter, adding more evidence for the Canadian economic recovery.

The increase came after six consecutive quarters of decline. The jump from 80.4% in the fourth quarter to 81.7% in the first quarter was the largest in more than three years, says RBC Financial. Manufacturing industries drove the gains, says RBC, led by the auto industry and high tech. The only real source of weakness was the logging and forestry industry, due to the softwood lumber dispute with the U.S.

Increases in production are expected to guide capacity use even higher, say RBC economists. They predict that a recovery in business investment will take over from strong consumer spending to squeeze out any excess capacity.

“The risks to the outlook and inflation are now tilted towards excess capacity diminishing more quickly than previously thought, perhaps even by or before year-end,” says RBC. “Monetary conditions are no longer consistent with an economy close to operating at full capacity and core inflation running in the 2.0% range. Look for the Bank of Canada to push through another 150 basis point in rate hikes before the year is out.”